Goldman questions future of OPEC + ahead of critical meeting

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Saudi Energy Minister Abdulaziz bin Salman speaks during a press briefing at the King Abdullah Petroleum Studies and Research Center (KAPSARC) in Riyadh for a press conference, November 18, 2020.FAYEZ NURELDINE | AFP | Getty Images

LONDON – The future of the oil-producing group OPEC + has been questioned by analysts at Goldman Sachs, as the alliance prepares to secure a new mandate on production restrictions.OPEC +, a group that includes some of the world’s largest producers of crude, is due to meet on November 30 and December 1 to discuss the next phase of its oil production policy.

The virtual gathering will likely see OPEC and its non-OPEC partners discussing whether to extend production cuts to next year in a bid to support prices, amid weak demand. and a recent upsurge in coronavirus cases.

“As another OPEC + meeting approaches, the uncertainty over the group’s decision is growing again,” Goldman analysts said in a research note released Tuesday.

“Beyond the outcome of another quota decision, however, there are new concerns about the future of the organization. ”

Russia and other non-OPEC countries have worked with the 13-member group to support oil prices in recent years. The group still exerts considerable influence in global energy markets, although it is no longer recognized as the force it once was.

In April, after days of protracted discussions, OPEC + agreed to the largest production cut in history. The record reduction in supply of 9.7 million barrels per day began on May 1, but was then reduced to 7.7 million in August and OPEC + announced plans to decrease further annually. next.

Earlier this month, Energy Intelligence reported, citing unnamed UAE officials, that the country was privately considering OPEC membership. UAE Energy Minister Suhail al-Mazrouei has since told Reuters that the country remains a committed member of OPEC +.

Speculation has surprised some due to the UAE’s stature within OPEC. It is the third producer of the group and a close ally of the Gulf of Saudi Arabia, leader of OPEC.

“These headlines once again call into question the future and purpose of the cartel, exacerbating the brief Saudi-Russian price war in March and Qatar’s departure from the group last year,” Goldman analysts said.

It ultimately reflects “the difficult double mandate that the group is trying to fulfill: to help rebalance the market after an unprecedented demand shock while increasing its revenues and market share in the medium term,” added the US bank.

OPEC was not immediately available for comment when contacted by CNBC on Tuesday.

In recent years, OPEC + has had to go through a historic collapse in oil prices, an unprecedented fuel demand shock, a price war between Saudi Arabia and Russia and Qatar’s departure from the group.

“Everything except ordinary sailing”

Goldman said he expects OPEC + to delay its planned production by 2 million barrels per day in January by three months, citing coordinated measures to reduce production as “the optimal short-term action. “.

He expects international benchmark Brent prices to average $ 47 a barrel if production restrictions are extended.

Brent futures traded at $ 46.45 a barrel on Tuesday, up about 0.9%, while US West Texas Intermediate futures traded at $ 43.52, over 1% more.

Both oil price contracts stabilized at their highest level for months in the previous session, after a series of encouraging vaccine developments in recent weeks boosted hopes for a recovery in demand in 2021.

Saudi Energy Minister Prince Abdulaziz bin Salman Al-Saud and Russian Energy Minister Alexander Novak are seen at the start of an OPEC and NON-OPEC meeting in Vienna, in Austria, December 6, 2019.

Leonhard Foeger | Reuters

Brent gained 2.4% on Monday to close at $ 46.06, its highest level since May 3. Meanwhile, WTI closed at $ 43.06 on Monday, up 1.5% for the session, marking its highest settlement since August 26. Both contracts on oil prices remain down. market territory, however, down about 30% year-to-date.

Tamas Varga, senior analyst at PVM Oil Associates, said on Tuesday that it seems likely that the next OPEC + meeting will be “anything but simple.”

He referred to the failure of the group’s Joint Ministerial Monitoring Committee to come up with a policy recommendation last week, reports that the UAE was considering becoming a member of OPEC and Iraq’s “problem child” while it continues to lag behind other members on compliance quotas.

“The consensus is that the producer group will not increase the level of production for at least three months and will stick to the current quotas,” Varga said.

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